Question

11-9

B2B Co. is considering the purchase of equipment that would allow the company to add a new product to its line The equipment is expected to cost $377600 with a 10-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 151,040 units of the equipment's product each year. The expected annual income related to this equipment follows Sales Costs 236,000 Materials, labor, and overhead (except depreciation on new equipment) 83,000 37,760 23,600 144,360 91,640 18,328 $ 73,312 Depreciation on new equipment Selling and administrative expenses Total costs and expenses Pretax income Income taxes (20%) Net income If at least an 10% return on this investment must be earned, compute the net present value of this investment. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)

Answer 1

Chart Values are Based on:
n =	10
i =	10%
Select Chart	Amount	x	PV Factor	=	Present Value
Present Value of an Annuity of 1	$111,072	x	6.1446	=	$682,493
Present value of cash inflows					$682,493
Present value of cash outflows					($377,600)
Net present value					$304,893